Invoice vs. Receipt: What's the Difference?

Many of us misconstrue invoices and receipts as two different words for the same document. But invoices and receipts are not interchangeable. Instead, think of them as two sides of the same coin:  Both are documents containing evidence of a transaction between two parties and the details of that transaction. These details usually include information such as business location, the time of day the purchase was made, and purchase totals. Legally speaking and depending on the industry, every exchange of a professional good or service requires a receipt or invoice. 

Despite there being many similarities between these two types of documents, they are definitely not the same and are by no means interchangeable. Understanding the differences between these two professional documents is extremely important. Being able to provide both individually displays a high level of professionalism and aptitude that is required in many areas. Here is how to tell the difference between the two documents, and how both can be used more efficiently.

What is an Invoice?

Invoices are documents that specify the details of transactions between two parties. They ensure clarity and document the necessary information behind a monetary trade deal. An invoice details what was exchanged, what each individual item cost, and the exact quantity of items that were transacted. After all that information is taken into account, the final payable cost is determined based on all the other data, and it is presented to whoever is paying the invoice. 

Invoices help businesses and contractors keep track of all the money and goods that they distribute and sell, as well as the income that they make off of the sales and purchases. Businesses can use inventory data from these invoices to become more organized and operate at a higher level of efficiency. There is a lot of information that goes into invoices that enables companies to be as organized as possible and maintain systems that promote maximum efficiency. 

Another feature of invoices is that they can be used to ensure clear communication between a contractor and a client. By giving both parties access to a document that details payment information, there is less likely to be confusion regarding the amount owed to a client. This information is essential in the event of an audit because it can prove that a company has followed the proper procedures for payment reporting. Problems with the IRS could arise if invoices are inaccurate or have information that contradicts the invoices received by another company. 

Many businesses and e-commerce companies have to deal with a very large number of invoices on a daily basis. This can lead to organizational issues and complications with large amounts of information that can occasionally be overwhelming. 

Settle is a company that can help streamline and simplify invoice processing. We’ve experienced firsthand how time-consuming and cumbersome it can be to pay vendors, which is why we’re committed to reducing friction in a business’s pre-existing billing flow. Settle seamlessly pays and factors invoices using best-in-class invoicing tools for both brands and vendors. 

What is a Receipt?

A receipt is a written document that acknowledges that a transaction has occurred between two parties. This occurs in many different areas of business, ranging from business to consumer, business to business, and when trading stocks. Receipts are used to document and detail any time an object or service of value has been transferred to another entity. This is to make sure that both parties are on the same page about what occurred in the transaction, how much was paid if money is involved, and when the transaction took place. 

Receipts often carry a fairly basic amount of information on them. The document details specifically what was transacted, and how much everything cost. They often also carry the date on them, just to ensure that both parties are on the same page in regards to when the transaction took place. There are many cases where both parties will retain receipts of the transaction, just to be able to better document and organize that information. 

Receipts are also important if the transaction was operated with a warranty service or a return service. If the party who bought the item later wants to return their purchase, the company, if they allow warranties and returns in their terms of service, will almost certainly require the receipt to complete the return transaction. This is because the receipt ensures that the product that was purchased was purchased from them, and the customer isn’t bringing a product from another business or organization to return to the company. 

It is also important to hold onto receipts to ensure that a business’s or entity’s transactions are fully and accurately documented. It is very easy to lose track of all the transactions that occur in and holding onto an organized list of receipts can be incredibly beneficial for making sure that all expenses are accounted for. Having specific receipts for every sale or purchase allows a business to maintain entirely accurate records of every transaction. 

Receipts also allow businesses to have a source of accountability and an accurate representation of where their money goes, which comes in handy during tax season. When businesses don’t maintain records of their income, it’s easy to incorrectly complete tax documents at the end of the fiscal year.  When businesses use receipts, they are able to accurately represent every source of outgoing and incoming money.  This allows businesses to prove they are abiding by federal tax law in the event of an audit.  

What is the Difference Between an Invoice and a Receipt?

On paper, receipts and invoices seem to function in a fairly similar manner. They both document transactions, they both have information about what occurred in the transaction, and they both can be used for historical documentation purposes. In practice, these two types of documents actually accomplish very different purposes and function very differently. 

An invoice is a document that is given from the seller to the buyer, often after goods have been delivered, but before they have been paid for. Invoices are typically used when a business has sold goods in large quantities, and they are often very helpful for companies that need to organize their outstanding balances efficiently. They are also very useful for contractors and freelancers who are selling goods and services, and they use them to list the contents of every monetary deal that they make.

A receipt is a document that details a transaction that has already occurred, after the goods or services have been delivered and paid for. It essentially functions as a proof of payment for both parties, and is documented proof that both parties received either the products or monetary compensation for the transaction. Receipts are commonly used in brick and mortar stores but are also often used online to make a buyer aware of the purchase that they have made. Receipts help both parties to know that a transaction took place, when it took place, and that it is mutually agreed upon and recognized by both parties. 

An invoice is typically used in a business transaction, documenting a payment that has yet to be made for goods and services that have already been delivered. A receipt is used in many different sectors, and it documents a completed payment for goods or services that have already been received. Understanding the difference between an invoice and a receipt can help businesses fully document both completed transactions and outstanding balances. 

Settle Makes Invoicing Easy

When businesses need to organize large quantities of transactions with suppliers and contractors, invoicing can become unnecessarily tedious and inefficient. Settle can help streamline the invoicing process by using best-in-class tools that seamlessly integrate with a business’s pre-existing billing flow. We make it easy for businesses, payers, and vendors alike to navigate the invoicing process, expediting the billing process along the way. The world of invoicing is changing, and it’s happening at Settle. 

Sources: 

https://bench.co/blog/accounting/what-is-an-invoice/

https://www.investopedia.com/terms/r/receipt.asp

https://www.sana-commerce.com/blog/invoice-vs-receipt-what-is-the-difference

https://smallbusiness.chron.com/difference-between-invoice-receipt-21275.html